China's Manufacturing Successor: Is It Us?

“Looking for skilled, low-cost labor?” asks CNN. “Forget about India and China. How about Jonesboro, Ark.?”
Interestingly enough, this is no rhetoric. This statement highlights one of the more recently publicized (but not exactly new) phenomena in manufacturing known as “on-shoring” or, in the case of Jonesboro, “rural-sourcing.

Aug 2nd, 2010

“Looking for skilled, low-cost labor?” asks CNN. “Forget about India and China. How about Jonesboro, Ark.?”

Interestingly enough, this is no rhetoric. This statement highlights one of the more recently publicized (but not exactly new) phenomena in manufacturing known as “on-shoring” or, in the case of Jonesboro, “rural-sourcing.”

Caterpillar made a splash this spring when it announced plans to move production of its water heaters from China back to Louisville, KY. While this may superficially look like some grand gesture in support of American jobs, the business case behind it is steadily improving. To be blunt, many rural areas in the United States offer the ultimate incentive for businesses these days—low cost of living (which translates to lower competitive wage rates), and a large available labor pool.

Combine this with the steadily increasing wage rates overseas (especially in China), the lead time and cost that comes with trans-oceanic transportation of goods, and the increasing risk of intellectual property violations, perhaps the once fresh face of low cost foreign assembly is now prematurely haggard.

And there might not be an equivalent foreign labor market waiting in the wings: A recent column by Josh Green, CEO of the sourcing intelligence service, Panjiva, offered some frank analysis of the situation: “In attempting to identify China's successor, it's worth revisiting the ingredients to China's success: pro-trade government policy, solid infrastructure, and a huge, underemployed labor pool,” says Green. “There is no ‘Next China,’ because there is no country in the world that has these three key ingredients.”

So for those manufacturers out there looking for a so-called “good deal”—and that’s all of you—it doesn’t have to mean crossing the Atlantic. I’ve spoken to countless manufacturers in the past few years about new building projects, consolidations, and relocations, and almost every single one of them has had something to say about why they chose a particular plot of land in a particular state in the U.S. And it’s not just the typical state chamber tax breaks for job creation; services-based organizations like NIST MEP offer manufacturers access to resources to help enhance growth, improve productivity and expand capacity.

Taking the magnifying glass to my own stomping grounds—Wisconsin—there’s more than a little to be proud of. According to recent data released by WMEP (Wisconsin Manufacturing Extension Partnership), services generated by the organization fueled an economic impact of $164 million with 973 jobs created and retained during the past fiscal year.

Specifically, WMEP assisted companies reported:

$102 million in increased/retained sales

$30 million in cost savings

$32 million in investment impact, including new plant and equipment

The numbers are inspiring, but the most important thing is taking the first step in tracking down the resources and taking an active role in keeping the U.S. a cost-competitive option—and all of this without the human rights violations, scandals, and uncertainties that can come with establishing a foreign labor component in an opaque or unstable region of the world.

IMPO columnist and author of Saving American Manufacturing, Mike Collins, doesn’t mince words when it comes to the pressures to develop U.S.-based industry: “The decline of America’s manufacturing base will affect all other sectors of the economy, many service jobs, and eventually reduce the overall growth of GDP. All sectors of the economy depend on manufacturing – they just don’t know it.”

To Mike’s point: if anybody knows how important manufacturing is to this economy, it’s us. So instead of taking a passive stance and waiting for the next “successor” to China, let’s throw our hats into the ring. Take the lead and examine your domestic options before assuming that global outsourcing is a reasonable option. You might be surprised by the aggressive and creative ways some states and organizations are working to make more domestic manufacturing a reality.

What are your thoughts? Do you think the era of cheap Chinese manufacturing has given way to "rural-sourcing"? Send me your thoughts at Anna.Wells@advantagemedia.com.